WASHINGTON (Reuters) - Spending by U.S. states on Medicaid, the healthcare program for the poor, soared last year and will likely continue growing despite measures to contain costs, according to a report released on Tuesday.

Total Medicaid spending, excluding administrative costs, likely reached $398.6 billion in fiscal 2011, which ended in June for most states. That was up 10.1 percent from the year before, when spending rose 6 percent, the National Association of State Budget Officers reported.

Medicaid was nearly one-quarter of all state expenditures in fiscal 2011, compared to elementary and secondary education, which accounted for 20 percent of all spending.

Based only on state general fund spending, which is backed by tax revenue, education represented 35 percent and Medicaid 17.4 percent.

States administer Medicaid with partial reimbursements from the federal government.

"The downturn in the economy has resulted in significant increases in Medicaid enrollment," the group said. "Enrollment growth averaged 5.5 percent in fiscal 2011 with states projecting Medicaid enrollment to grow by an additional 4.1 percent in fiscal 2012."

In 14 states, Medicaid represented more than 25 percent of total expenditures, and in 12 states Medicaid spending grew more than 10.1 percent. It spiked 40.8 percent in California, 22.7 percent in Hawaii, and 22.9 percent in Idaho. It dropped in Maine, Nebraska, North Carolina and New Mexico, mostly on a decline in federal funds.

Overall, collective state spending totaled $1.69 trillion in fiscal 2011 and $1.62 trillion in fiscal 2010. Expenditures, though, are still lower than before the housing downturn, the financial crisis and the recession hobbled state revenue.

Fiscal conditions will likely continue deteriorating through 2060 because of rising healthcare costs, the Government Accountability Office, the federal auditing agency, has warned. Medicaid spending will continue growing and because all states except Vermont must balance their budgets they will cut funds from other areas to put toward the program, it said.

Outside of increased demand, Medicaid spending also rose in fiscal 2011 because of the national healthcare reform law, which is on course to make more people eligible for the aid. The stimulus plan that expired in December gave states additional federal Medicaid funds to spend.

Still, "nearly every state implemented at least one new Medicaid policy to address costs in fiscal 2011," the report found.

The Affordable Care Act, enacted in 2010 to extend healthcare to all Americans, will expand Medicaid's reach beginning January 1, 2014. It also relies on states to create exchanges to sell health insurance to individuals.

"Some of the most significant challenges include upgrading current Medicaid eligibility systems, accommodating the significant number of new enrollees under Medicaid, setting up health insurance exchanges, and dealing with the lack of administrative resources and staff at the state level," the report found.

The budget officers said states will likely have "austere budgets for at least the next several years and will continue to make difficult spending decisions" from insufficient revenues, the loss of stimulus money, long-term liabilities such as pensions and "uncertainties regarding national economic growth, healthcare reform, future federal funding levels."